Investors ignoring ‘genuine disruptors’ in tech
Investors are getting “overexcited” about the strong share price growth of certain technology names, which could be problematic in the future, according to Antipodes.
There had been several technology names which had reported strong earnings and record earnings results but had seen their shares sell off as they had “eye-watering” valuations.
Antipodes highlighted Netflix, Pinterest and Zoom as being examples of these types of stocks.
“COVID-19 has been a one-off shot in the arm for many digital businesses and we think investors got too excited. Fast forward a year and now the market is becoming uncertain about growth rates in a ‘normal’ world.”
In the example of Zoom, which thrived with the move to remote working, the firm was reporting revenue growth of 70% to 100% per quarter on a sequential basis but recent company guidance had forecast it would fall to 10% next quarter. This announcement caused the stock to fall almost 20%.
Meanwhile Netflix reported new subscribers were expected to be one million in the June 2021 quarter as social restrictions were eased versus 10 million in the June 2020 quarter during lockdown.
Shares in Netflix had fallen 7% since the start of 2021 while Zoom had fallen 19%. This compared to gains of 402% for Zoom during 2020 and 66% for Netflix.
“There are many more examples of the peak earnings sell off that's gripping tech stocks more broadly. Within the tech sector we are cognisant that disruption is real, but not all companies are genuine disruptors.”
Despite its misgiving about some technology names, the Antipodes Global fund had its largest weighting to the software/internet space including holdings such as Facebook, Microsoft and Tencent.
According to FE Analytics, the Antipodes Global fund returned 20.8% over one year to 31 March, 2021, versus returns by the alternative sector of 17.3% withing the Australian Core Strategies universe.
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Laura Dew
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